Single LLC per property or Single LLC for a group of properties?

Question

I understand the basic protections afforded by the LLC, using a separate LLC for each property in theory provides the best legal protection against other assets. However, having separate LLC for each property seems like it would create an excessive amount of administrative duties and costs since each LLC requires various filings depending on the state of incorporation etc. For an individual just starting out it doesn't seem financially feasible to pay for separate LLCs.

If an individual were to use separate LLCs for each property, has anyone developed a specific LLC naming convention that they feel improves the administrative process? I have seen LLCs named after the address (123 Main St LLC).

Nathan Gesner · Answer

Welcome to the BiggerPockets forums!

I see so many new investors get wrapped around the axle on this. You need assets first, then you worry about how to protect them. If investors spent half as much time learning the law or understanding their lease agreement, an LLC wouldn't have half as much appeal.

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

Ben Gammon · Answer

The goal is asset protection. I see it as you can either go the LLC route or the insurance route. I know some investors that have $2M in umbrella insurance and prefer the freedom this provides. It's cheap in Ohio to create an LLC so I just create an LLC for each property and name it after each property. There are some extra hurdles to this, mainly in tracking expenses/income closely between properties but I think those should be tracked anyways so I think it's worth it.

Marco Fiore · Answer

I've had clients that create a new LLC for each property they invest in. Others combine their investments in the same LLC. It just depends on what you're looking for and the goals you have for the years to come. Making a different LLC for each new property further segments and limits any potential liability between them. However, some people find this method a bit more complicated. On the other hand, single-member LLCs must be careful to avoid commingling business and personal assets. This could lead to what is called piercing the corporate veil and the loss of your limited liability.

Richard Bechtol · Answer

Brandon,

I think you hit the nail on the head that the administration of having an LLC for each property can be overwhelming. I also agree with Jason in that it might make more sense to have something like a Series LLCs or Delaware Statutory Trust to allow for scaling while keeping administrative costs down. These entities have a single Parent entity for maintenance purposes, but they are able to replicate themselves into multiple Child Series LLCs or Child Delaware Statutory Trusts to hold a variety of assets. Based off your location tag being in Ohio a Series LLC would probably make the most sense to you.

Jason Marino · Answer

Hi Brandon,

Some entities that investors use to have the compartmentalization of multiple LLCs with more convenient maintenance costs are Series LLCs and Delaware Statutory Trusts. These entities have a single Parent entity for maintenance purposes, but they are able to replicate themselves into multiple Child Series LLCs or Child Delaware Statutory Trusts to hold a variety of assets in segregated structures.

Nate Sanow · Answer

Once again @Nathan G. comes in for the win. Wealth of knowledge over here! All I might humbly add, to his point in number 5, is I’ve often thought separating every freaking house into a new llc seems necessary IF your attorney sucks. Call me crazy but even if you only get sued for only 1 house in 1 llc, you still have to get an attorney to defend you. She or he better be a rock star!!! I am just saying I think knowing that the risk of being sued is part of any business shouldn’t affect all of our business structures. Just my opinion.

Account Closed · Answer

My father-in-law loved scraping barnacles off of his sail boat and polishing the brass all over the place. That makes him a good candidate for having an LLC. If you don't like scraping barnacles, you might be surprised how worthless an LLC is if you get sued. It is detail oriented. LLCs require work to maintain.

Having umbrella insurance can give you much of the same protection without the tedium.

Gabe C. · Answer

The way it was framed to me by my attorney was basically “what would you be willing to lose?” Basically fill up an LLC until it contains the limit for what you’d be willing to lose if you were sued, then start another one. Not that the other one couldn’t be pierced too, but you up the cost and annoyance to do so. If you’re leveraging or buying cheap properties, it might mean a few. If you’re paid off or buying expensive homes maybe one. In some cases umbrella insurance is plenty. Totally an individual choice. Worth talking to an attorney.

Single LLC per property or Single LLC for a group of properties?

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